Apple Inc. v. Psystar Corporation

Filing 27

Reply to Opposition re 16 MOTION to Dismiss Psystar's Counterclaims; Memorandum of Points and Authorities in Support Thereof filed byApple Inc.. (Attachments: # 1 Affidavit Reply Declaration of James G. Gilliland, Jr., # 2 Exhibit 1 to Reply Declaration of James G. Gilliland, Jr., # 3 Exhibit 2 to Reply Declaration of James G. Gilliland, Jr.)(Gilliland, James) (Filed on 10/23/2008)

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Apple Inc. v. Psystar Corporation Doc. 27 Att. 1 Case3:08-cv-03251-WHA Document27-2 Filed10/23/08 Page1 of 5 Exhibit 1 to Reply Declaration of James G. Gilliland, Jr. In Support of Apple Inc.'s Motion to Dismiss Psystar's Counterclaims Case3:08-cv-03251-WHA Document27-2 Filed10/23/08 Page2 of 5 * * ***** ***** COMMISSION OF THE EUROPEAN COMMUNITIES 21.4.2004 C(2004)900 final Brussels, COMMISSION DECISION of 24.03.2004 relating to a proceeding under Article 82 of the EC Treaty (Case COMP/C-3/37.792 Microsoft) (ONLY THE ENGLISH TEXT is AUTHENTIC) (Text with EEA relevance) EN EN Case3:08-cv-03251-WHA Document27-2 Filed10/23/08 Page3 of 5 which can be distinguished from neighbouring areas because the conditions of competition are appreciably diferent in those areas.,,545 (427) The relevant geographic market for client PC operating systems, work group server operating systems and media players is world-wide. The objective conditions for competition are essentially the same acros~ the world. PCs and servers are manufactured by a large number of companies that operate on a world-wide scale such as IBM, Compaq, or Dell. In order to sell computers with the operating system (and a media player) already installed, such manufactuers obtain the necessar licences from the software manufacturers. Generally, a single world-wide licence agreement is entered into between, the computer manufactuer and the softare manufactuer. The computers are then sold on a world-wide scale. Neither import restrictions, transport costs or technical requirements constitute significant limitations. Language-specific demand characteristics regarding the relevant softare exist but, in so far as the supply-side is concerned, do not constitute an obstacle for swift supply on a global basis in accordance with language-related preferences. The entire world can therefore be regarded as the relevant geographic market. 5.2 Dominant position (428) A dominant position under Aricle 82 of the Treaty has been defined by the Court of Justice of the European Communities as "a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers".546 5.2.1 Client PC operating systems In its response to the supplementar Statement of Objections, Microsoft (429) acknowledged that it held "a dominant position in the supply of operating systems that run on personal computers ('PCSJ".54? The following recitals will show that Microsoft holds a dominant position which exhibits extraordinary features since it controls the quasi-standard of the relevant market in question, and has done so for some time. Microsoft's dominance relies on very high market shares and significant barriers to entry. 545 Commission notice on the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p.5) 546 547 See judgment in Case 27176 United Brands v Commission (1978) E.C.R. 207, at paragraph 65. Microsoft's submission of 17 October 2003, on page 1. 118 Case3:08-cv-03251-WHA Document27-2 Filed10/23/08 Page4 of 5 Market shares Third part estimates of market shares and the evidence gathered during the (430) investigation highlight the extraordinary position of Microsoft in the market. (431) In 2000, Microsoft's market share548 in terms of new client PC operating system licences was, according to IDC,549 92.1 % when measured by unit shipments and 92.8% measured by revenues.550 In 2001, this figure had risen to 93.2% when measured by unit shipments and 95.4% by revenues.55 In 2002, it had further risen to 93.8% when measured by unit shipments and 96.1% by revenues.552 Microsoft is forecast to maintain these 90%+ market shares in the coming year's.553 If operating systems for Intel-compatible PCs excluding the Macintosh operating system are looked at (see recital (326) above), Microsoft holds an even greater share of the market. (432) Moreover, Microsoft's extremely high market shares have not come about recently. In 1996, Microsoft had a market share of 76.4%, and since 1997 has held market shares of consistently over 80%,554 and of over 90% since 2000.555 (433) In terms of installed base (which reflects inter alia past sales), IDC's evaluation is that Windows (all versions) has grown from 84.6% to 92.8% between 2000 and 2002.556 The results of the Commission's 2003 market enquiry are in line with these figures. The responses received during the Commission's 2003 market enquiry 548 In the client PC operating system market, market share data measured in units shipped may to some extent be more informatjve than revenue-based figures. Indeed, end-users typically desire one copy of an operating system per client PC. Moreover, the client PC operating system market is one characterised by network effects, so that being able to attract a wide number of users is a key competitive advantage for a client PC operating system product. ''To the extent that a firm's share is greater using the dollar sales measure, this indicates that the firm's products are positioned towards the high end of the market. Since users typically desire a single copy of software per computer, unit sales tend to be a better measure of (market) share than dollar sales." See Michael Katz and Carl Shapiro, Antitrust in Software Markets, September 1998, page 14 (at: 549 http://faculty.haas.berkeley.edulshapiro). Intemational Data Corporation describes itself as "the premier global market intellgence and advisory firm in the information technology and telecommunications industries". See 550 551 552 553 554 555 US/stiaboutIDC.jhtml;jsessionid=RDV3XOCOORP24CTF A4FCFF AKMDY WIWD. IDC, Worldwide Client and Server Operating Environments Forecast, 2002-2007 IDC, Worldwide Client and Server Operating Environments Forecast, 2002-2007 IDC, Worldwide Client and Server Operating Environments Forecast, 2002-2007 IDC, Worldwide Client and Server Operating Environments Forecast, 2002-2007 See first Statement of Objections, at paragraph 246. Microsoft's enduring high market shares were also highlighted by the US District Court for the District of Columbia. Referring to operating systems for Intel-compatible PCs, it held that: "(eJvery year for the last decade, Microsoft's share of the market for Intel-compatible PC operating systems has stood above ninety percent. For the last couple of years the .figure has been at least ninety-fve percent, and analysts project that the share wil climb even higher over the next few years". See Findings of Fact of 5.11.999, United States District Court for the District of Columbia, United States v Microsoft 556 Corporation, Civil Action No. 98-1232 and 1232 (TPJ), at paragraph 35. IDC, Worldwide Client and Server Operating Environments Forecast, 2002-2007, on page 17. 119 Case3:08-cv-03251-WHA Document27-2 Filed10/23/08 Page5 of 5 cover a total amount of approximately 1.2 milion to 1.3 milion client PCs. More than 1.5 milion (more than 87%) of them run Windows (all versions). (434) Microsoft's share of the market thus only allows for fringe competition. The main alternative to Microsoft's client PC operating system product would be Apple's Mac OS, assuming that it is included in the relevant market. In 2002, this client PC operating system held a market share of 2.9% when measured in unit shipments and 2.2% when measured in revenue.55? Table 5 summarises Microsoft's market shares and those of its competitors since 2000 in the client PC operating system market: Table 5: Client PC operating system market shares since 2000 (%) Operating system 2000 2001 2002 . Units 93.8 2.9 2.8 0.5 100.0 Units Windows Apple (Mac OS) Linux Others 92.1 3.9 1.7 Revenues 92.8 3.3 0.5 3.3 100.0 Units 93.2 3.1 Revenues 95.4 2.4 0.4 1.8 Revenues 96.1 2.3 1.3 2.2 0.4 1.4 Total 2.4 100.0 100.0 100.0 100.0 Source: IDC, Worldwide Client and Server Operating Environments Forecast, 2002-2007 (435) Very large market shares, of over 50%, are considered in themselves, and but for exceptional circumstances, evidence of the existence of a dominant position.55 Market shares between 70% and 80% have been held to warrant such a presumption of dominance. 559 Microsoft, with its market shares of over 90%, occupies almost the whole market - it therefore approaches a position of complete monopoly, and can be said to hold an overwhelmingly dominant position.56o 5.2. 1.2 Continuity of Microsoft's market power (436) As has been highlighted at recital (432), Microsoft has held very high market shares in the client PC operating system market for many years. As such, Microsoft has enjoyed an enduring stability and continuity to its market power. However, prior to its acceptance that it held a dominant position in the market (see recital (429) above) Microsoft had argued that since the Commission's allegations related to Windows 2000 Professional, and since this version of Microsoft's client PC operating system 557 558 \DC, Worldwide Client and Server Operating Environments Forecast, 2002-2007 See Judgment of the Court of Justice in Case C-62/86 Akzo v Commission (1991) E.C.R. 1-3359, at paragraph 60 and Judgment of the Court of First Instance in Case T -228/97, Insh Sugar v Commission Judgment ofthè Court of 559 (1999) E.C.R. page II-2969, at paragraph 70. First Instance in Case T-30/89, Hilti v Commission (1991) E.C.R. p. 11-1439, at paragraph 89, confirmed by the Court of Justice in Case-53/92 P, (1994) E.C.R. 1-667. 560 Advocate General Fennelly talked of a concept of "superdominance" and highlighted the "particularly onerous special obligation" affecting an undertaking which enjoys a position of "ovem'helming dominance verging on monopoly" in his opinion in Joined Cases C-395/96 P & C-396/96 P, Compagnie Maritime Beige and others v. Commission ("Cewal') (2000) ECR 1-1365, opinion of Advocate General Fennelly, at paragraph 137. 120

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